Wednesday, March 26, 2008

David Leonhardt's piece in today's NYT reminds me of one of my favorite papers on housing economics

The headline is: Be It Ever So Illogical: Homeowners Who Won’t Cut the Price

The story reminded me of a QJE paper by David Genesove and Chris Mayer: Loss Aversion and Seller Behavior: Evidence from the Housing Market

The abstract:

Data from downtown Boston in the 1990s show that loss aversion determines seller behavior in the housing market. Condominium owners subject to nominal losses 1) set higher asking prices of 25-35 percent of the difference between the property's expected selling price and their original purchase price; 2) attain higher selling prices of 3-18 percent of that difference; and 3) exhibit a much lower sale hazard than other sellers. The list price results are twice as large for owner-occupants as investors, but hold for both. These findings are consistent with prospect theory and help explain the positive price-volume correlation in real estate markets

1 comment:

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